Note 13. Derivatives

Interest Rate Swaps

The Company uses interest rate swaps to hedge variable interest payments due on certain of its term loans and aggregation facility. These swaps allow the Company to incur fixed interest rates on these loans and receive payments based on variable interest rates with the swap counterparty based on the one or three month LIBOR on the notional amounts over the life of the swaps.

In January 2015, the Company purchased interest rate swaps which mature in October 2028. The interest rate swap contracts were executed with four counterparties who were part of the lender group on the Company’s syndicated term loans. In April 2016, the Company purchased an interest rate swap which matures in August 2022. The interest rate swap contract was executed with the lender on the Company’s bank term loan which matures in September 2022. In November 2016, the Company purchased interest rate swaps which mature in July 2034. The interest rate swap contracts were executed with two counterparties who were part of the lender group on the Company’s syndicated aggregation facility. The swaps are forward starting with effective dates in January 2019. As of December 31, 2016, the unrealized fair market value gain on the interest rate swaps was $1.6 million as included in other assets in the consolidated balance sheet.

The interest rate swaps have been designated as cash flow hedges. In the year ended December 31, 2016, the hedge relationships on the Company’s interest rate swaps have been assessed as highly effective as the critical terms of the interest rate swaps match the critical terms of the underlying forecasted hedged transactions. Accordingly, changes in the fair value of these derivatives are recorded as a component of accumulated other comprehensive loss, net of income taxes. Changes in the fair value of these derivatives are subsequently reclassified into earnings, and are included in interest expense, net, in the Company’s statements of operations in the period that the hedged forecasted transactions affects earnings.

The Company recorded an unrealized gain of $0.3 million and an unrealized loss of $2.4 million for the years ended December 31, 2016 and 2015, respectively, net of applicable tax expense of $0.2 million and $0.0 million, respectively. The Company recognized interest expense on derivatives into earnings of $1.0 million and $1.5 million for the years ended December 31, 2016 and 2015, respectively, net of tax expense of $0.6 million and $0.0 million, respectively. During the next twelve months, the Company estimates that an additional $1.3 million will be reclassified as an increase to interest expense. There were no undesignated derivative instruments recorded by the Company as of December 31, 2016.

At December 31, 2016, the Company had the following designated derivative instruments classified as derivative assets as reported in other liabilities in the Company’s balance sheet (in thousands, other than quantity and interest rates):

Type	Quantity	Maturity Dates	Hedge Interest Rates		Notional Amount		Fair Market Value		Credit Risk Adjustment			Adjusted Fair Market Value
Interest rate swaps	4	10/31/2028	2.17%-2.18%		$	125,471	$	630	$	(123	)	$	507
Interest rate swap	1	8/31/2022		1.27%	$	17,390	$	343	$	(11	)	$	332
Interest rate swaps	3	7/31/2034	2.48%-2.52%		$	85,174	$	752	$	41		$	793

Warrants

In July 2015, the Company entered into a letter of intent to issue warrants to purchase up to 1,250,764 shares of the Company’s common stock to the former Series D and E preferred stockholders as an inducement to convert their shares of convertible preferred stock into shares of common stock immediately prior to the closing of the Company’s initial public offering and waive any potential anti-dilution adjustments resulting from the issuance of shares of the Company’s common stock in the Company’s initial public offering. The warrants were issued on September 30, 2015. The warrants are exercisable for three years from the date of grant and have an exercise price of $22.50 per share. The warrant derivatives are recorded at fair value as derivative liabilities as reported in other liabilities in the Company’s consolidated balance sheet. The fair market value of the warrants on the commitment date was $1.5 million. The warrants are remeasured at each reporting period with the changes in the fair value presented in other expenses (income), net in the Company’s statement of operations.

At December 31, 2016, the fair market value of the warrants was de minimis. At December 31, 2015, the fair market value of the warrants was $0.6 million. The Company recognized a gain related to the change in fair value of the warrants of $0.6 million and $0.9 million for the years ended December 31, 2016 and 2015, respectively.